Swiss watchmakers forced to rethink strategy in an environment which remains challenging

Zurich, 27 September 2016

According to the Deloitte Swiss Watch Industry Study 2016, the number of watch executives who are pessimistic about the outlook for the Swiss watch industry has doubled since 2015, peaking at 82%. Weaker foreign demand poses the key challenge at the moment – and the industry believes this will remain in the next 12 months. However, there are bright spots in the horizon: The industry’s unique positioning in the luxury segment, the strong brand image of many of the Swiss players, the appeal of the Swiss Made label, and new markets could all offer opportunities for Swiss watch brands, manufacturers and retailers alike.

After years of tremendous growth between 2010 and 2013 followed by a relative plateau in 2014, Swiss watch exports started to falter in the second half of 2015, primarily due to a sharp falls in sales in Asia. To date, exports of Swiss watches, both in volume and value, have been decreasing for 14 consecutive months.

The main factor behind this slump: Weaker foreign demand, especially from key markets Hong Kong and China, triggered by the economic slowdown of the region, the new anti-corruption and anti-kickback legislation in China, and the altered visa requirements for Chinese tourists.

The Swiss watch industry sees this trend continuing:
57% of the watch executives surveyed in the Deloitte study expect the demand for Swiss watches in Hong Kong to keep declining in the next year. Watch executives continue to consider the United States (in the shorter term) and India (in the longer term) as the markets with the most potential.

Karine Szegedi, Partner and Head of Fashion & Luxury for Deloitte in Switzerland, says, “Though the weaker foreign demand remains challenging for the Swiss watch market, we do see rays of hope. The attractiveness of the Swiss Made label, the undisputed leadership of Switzerland in the luxury watch market and its innovation capacity all remain strong fundamentals. Untapped areas outside of big cities in China and markets such as the US and India also present further potential growth for the Swiss watch industry. Although the latest export figures from the United States were lower than expected, we still see the US potentially overtaking Hong Kong as the number one market for Swiss watches in 2016 and beyond.”

Challenges and opportunities: Smartwatches and foreign demand

79% of the surveyed watch executives name weaker foreign demand as a key risk to their business in the next 12 months (compared to 57% in 2015). The strong Swiss Franc remains a concern, even though it is considered less important than in 2015 (50% in 2016 vs. 69% in 2015). The same goes for smartwatches, with less than a quarter (21%) listing that trend as a risk. For the first time since the launch of the Deloitte Swiss Watch Industry Study in 2012, counterfeiting ranks among the top five risks. This is mainly due to the fact that, with the growing importance of online sales, the distribution of fake watches has become easier.

Jules Boudrand, Director at Deloitte in Switzerland and co-author of the study, says, “Although the volume of smartwatches is likely to exceed that of Swiss wristwatches in 2016, they are still far behind in terms of sales value. Their progression in such short time is indeed impressive but there is currently no sign that this growing category poses a significant threat to the Swiss watch industry. Smartwatches should rather be considered as an opportunity for some Swiss brands to differentiate themselves and capitalize on their strong brand name. By doing so, they could attract a new and potentially younger audience in hopes these new consumers may convert to more high-end mechanical watches once attached to the brand image.”

So far, Swiss brands have not played a very important role in the smartwatch market in terms of volume, but they are catching up on visibility: Deloitte’s online consumer survey conducted among 3,000 people in six countries1 shows that Apple remains the most popular brand, but Swatch (as in 2015) and Tag Heuer (new in 2016) are amongst the top 3 smartwatch brands favoured by consumers in countries such as Switzerland, Germany, Italy and Japan.

Jules Boudrand adds, “With Apple discontinuing the gold versions of its smartwatch (prices starting at CHF 10000), the current target market for “high-end” smartwatches seems to be more in a range between CHF 1000 and 2000. This is a price range where Tag Heuer and Frederique Constant are present and where other Swiss brands could follow. Time will tell if more high-end Swiss Made models could also find their place on this market.”

Looking ahead: Business strategies

The introduction of new products remains the most important business strategy for watch executives over the next year, with 69% of respondents considering this a strong priority (up 4pp since 2015). Expanding into new markets equally remain on the top of Swiss watch executives’ agendas, as do reducing costs and putting a strong focus on R&D.

Karine Szegedi comments, “It’s a positive sign that many Swiss watch executives are – next to reducing costs – prioritizing forward-looking strategies like developing new products and expanding into new markets. Their continued focus on R&D is also encouraging. We see more and more Swiss watchmakers implementing innovative practices such as 3D printing: 64% of Swiss watch executives surveyed indicated that they already use 3D printing as a concept or prototype tool, and we will probably see this technology enabling an increasing number of manufacturers to produce finished parts in the future.”

Digital shift in consumers’ behaviour and watchmakers’ sales channels

In the past, Swiss watch brands tended to be reluctant to adopt online sales channels. A pro-digital shift can though now be observed: Online resellers are viewed as a more important sales channel versus own e-boutiques, authorised dealers and mono-brand stores. 50% of the watch executives surveyed indicated that they will put the most emphasis on online resellers in the next 12 months, compared to only 19% in 2015.

Although online sales remain marginal for now, this could be a good strategy for the Swiss watch industry going forward, since consumer behaviour has also shown a pro-digital shift. Deloitte’s consumer survey indicates that social media and bloggers have the greatest influence on young peoples’ (aged 18-29) watch buying decisions in all countries surveyed except China. Swiss watch brands have embraced the new generation, with the majority of executives naming social media as their most significant marketing channel, closely followed by blogs and building a social community. Watch brands now have a much more integrated online presence than a few years ago and take better advantage of the many opportunities online channels offer.

1 Survey conducted in China, Germany, Italy, Japan, Switzerland and the United States by Research Now in May and July 2016.

Contacts

Partner

Karine leads Deloitte Private in Switzerland and is a member of the Swiss Executive team. She is an Audit Partner and Swiss Licenced Audit Expert with over 20 years of experience in the areas of Consu... More

Director

Jules is a Director in Deloitte’s Financial Advisory practice and Head of Corporate Finance Advisory for Western Switzerland. He has more than 10 years of experience in M&A advisory and business valua... More

Head of Communications

Sophie heads our communications team. She manages Deloitte Switzerland’s corporate communications, media and advertisement activities. Sophie is the first point of contact for media representatives an... More

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About the Deloitte Swiss Watch Industry Study

The 2016 version of the Deloitte Swiss Watch Industry Study is the fifth of its kind and unique to the Swiss market. Based on an online survey with more than 50 watch executives conducted between May and July 2016 and personal discussions throughout the year as well as a consumer survey among 3,000 people in China, Germany, Italy, Japan, Switzerland and the US (by the data collection provider Research Now), it is an indicator of the current sentiment in the Swiss watch market.

Deloitte is a leading accounting and consulting company in Switzerland and provides industry-specific services in the areas of Audit & Risk Advisory, Consulting, Financial Advisory and Tax & Legal. With more than 1,400 employees at six locations in Basel, Berne, Geneva, Lausanne, Lugano and Zurich (headquarters), Deloitte serves companies and institutions of all legal forms and sizes in all industry sectors. Deloitte AG is a subsidiary of Deloitte LLP, the UK member firm of Deloitte Touche Tohmatsu Limited (DTTL). DTTL member firms comprise of over 225,000 employees in more than 150 countries.

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